USD/JPY Range-bound after Recent BoJ-Inspired Volatility Dissipates
The yen weakened steeply after the BOJ rate meeting on Friday, after the central bank made technical changes to its asset-purchase programme, which were interpreted by some as consituting further easing.
The volatility resulted from the BOJ altering it is policy on the maturity of the bonds it purchases, favouring those with a maturity of 12 years to the previous 10-year JGBs.
In addition, the central bank planned to create a special 300bn yen fund for purchasing the shares of firms with high capex, in order to favour corporations which had increased capital expenditure, which is in line with the BOJ’s policy to stimulate the economy.
However, the brief spell of volatility soon abated after the BOJ said the changes did not constitute a change in the size or scope of its QE programme, since it kept the pace of its bond purchases unchanged at 80tr a year.
Governor Kuroda said:
“These measures are not a response to downside risks for prices or the economy,” adding “This is not additional easing.”
Stretch sees move as indicative of no further easing
Jeremy Strech of CIBC observed, “The last central bank decision of the year resulted in an unexpected degree of volatility.
“Into the meeting there was no expectation of the BoJ changing its annual target of monetary base expansion, from the current JPY80trn.
“However, the change in the composition of that target, via the extension of the average JGB maturity, from 7-10 years to 7-12, in addition to a new programme to purchase Y300bn of Exchange Traded Funds, prompted an initial knee jerk reaction higher in USD JPY, via the presumption of this reflecting additional policy stimulus.
“The spike above 123.50 was quickly reversed as the realisation soon took hold that the measures were merely adaptations of the current programme and in no way an additional policy expansion as JGB maturities required the buying extension.
“Indeed we would continue to argue that as the BoJ seeks to adapt their current policy stance, it looks increasingly unlikely to further extend monetary policy.”
Unless risky assets fall hard, economists do not see USD/JPY falling too much lower today.
USD/JPY Weakening, Long-Term Bullish Bias Favoured
Taking the strategic approach, Swissquote remind traders to obey the key levels in the exchange rate,
“USD/JPY has moved strongly up and down after BoJ meeting.
“Hourly support can be found at 120.07 (28/10/2015 low). Hourly resistance lies at 123.76(18/11/2015 high) has been broken. Expected to further consolidate.
“A long-term bullish bias is favoured as long as the strong support at 115.57 (16/12/2014 low) holds.
“A gradual rise towards the major resistance at 135.15 (01/02/2002 high) is favoured. A key support can be found at 116.18 (24/08/2015 low).”
